2023 mortgage market: What are brokers expecting to see?

The value of education has never been greater than in these testing times, says executive

2023 mortgage market: What are brokers expecting to see?

With a turbulent 2023 for the mortgage market set to see prolonged high interest rates, steeper qualification criteria and hurdles for many borrowers facing renewal, now is the time for mortgage professionals to double down on education, according to a prominent Ontario-based broker.

Carmen Costa (pictured), broker and owner at TCG Lending Centres, told Canadian Mortgage Professional that recent Bank of Canada rate hikes had illustrated the need for agents and brokers to be able to guide their clients through often worrisome times and provide important context and details around those central bank decisions.

“I have had a lot of inquiries from clients on the variable rate [since the Bank’s January decision],” she said. “Some were regarding the fixed rates. I don’t think clients have an understanding of rates and the difference between them. Education is key in this industry now. This will eliminate the fear of these conversations of rate hikes.”

That’s especially true because there’s no one-size-fits-all solution for borrowers, she added, with the recommendation for every client depending on their portfolio and specific mortgage situation.

Catherine Ellis (pictured below), broker at the Kelowna, BC-based Cultivate + Evolve Financial, told CMP that the advice provided to each borrower depended on their own circumstances, although she said she was noticing a majority of variable-rate clients choosing to ride out the current high-rate environment, shift into a shorter-term variable, or re-amortize to bring down carrying costs.

What problems are faced by borrowers whose mortgage is coming up for renewal?

The fact that rates have surged during the past year has presented new challenges for mortgage borrowers of many stripes – not least those whose mortgage is coming up for renewal in a much more expensive borrowing environment than last year.

Ellis said the outlook for borrowers who took out a mortgage in 2020, when rates were at a rock-bottom low, tends to vary. “I would say between 20% and 30% of them are feeling challenged, 40% are worried if things trend higher, and the remaining are aware of the savings during the previous periods and willing to ride out the highs and lows,” she explained.

Mortgage professionals should brace themselves for stormy waters ahead, Costa warned, with little indication that rates will fall significantly in the near term or that the debt burden facing many Canadians will subside.

“I am seeing any client who is coming up for renewal struggling,” she said. “What would have been an A client is now flipping to the B or private sides.

“It is hard to stress test clients now. With outside debt at an all-time high, it’s getting harder to renew or refinance these clients. To be honest, the worst is yet to come.”

What’s the outlook for the mortgage market in 2023?

While the Bank of Canada indicated that further rate hikes are unlikely after its quarter-point hike in January, that depends on factors including inflation and the labour market continuing to trend in the right direction – and Costa said it was premature to believe that rates would definitely not rise further this year.

“I am not certain this is the end of rate hikes. I think there are more to come,” she said. “I think towards the end of 2023, this may be the case with the end of rate hikes.”

Such difficult market conditions mean that the onus is on brokers and agents to step up to the plate and deliver for their clients, Costa said, with the transactional, volume-based approach that dominated at the height of the COVID-19 pandemic market boom now a thing of the past.

She suggested that a more challenging market could see many of the recent licenses who became an agent during peak activity exit the profession in 2023.

“This is the time that mortgage brokers and agents have to do their job,” she said. “Putting deals together will be a lot harder and a lot more thought process [will be required] to complete a transaction.”

Ellis said difficult times are ahead, but expressed the hope that the downturn would be a brief one before a return to more normal economic conditions. “I think this spring will prove challenging with rising unsecured debts, layoffs and higher costs of living holding strong,” she said, “but I hope the pinch is short-lived and the recovery is rapid – for the best outcome for all Canadians.”

What are you focusing on in your approach to the mortgage market for 2023? Let us know in the comments section below.